WASHINGTON/ISLAMABAD The top U.S. military officer accused Pakistani intelligence on Thursday of backing violence against U.S. targets including the American Embassy in Afghanistan, a stunning remark that fueled a war of words and seemed certain to deepen tensions in South Asia.

Admiral Mike Mullen said Pakistan's Inter-Services Intelligence agency (ISI) played a role in the September 13 attack on the U.S. Embassy in Kabul, supporting militants known as the Haqqani network.

That network, he said, is a "veritable arm" of the ISI.

The embassy attack was the latest in a series of violent episodes that were a blow to U.S. efforts to bring the Afghan war to a peaceful close.

Pakistan's interior minister rejected the U.S. accusations of Islamabad's links to the Haqqanis, one of the most feared insurgent groups operating in Afghanistan.

The minister, Rehman Malik, also warned against a unilateral U.S. ground attack on the Haqqanis, who are based in Pakistan's ungoverned tribal territories.

"The Pakistan nation will not allow the boots on our ground, never. Our government is already cooperating with the U.S. ... but they also must respect our sovereignty," Malik said in an interview with Reuters.

The harsh words appear to represent a new low in U.S.-Pakistani relations, which had barely begun to recover from the unannounced U.S. Special Forces raid that killed Osama bin Laden in the Pakistani city of Abbottabad in May.

COMPLETE BREAK IN TIES UNLIKELY

The tensions could have repercussions across Asia, from India, Pakistan's economically booming arch-rival, to China, which has edged closer to Pakistan in recent years.

A complete break between the United States and Pakistan -- sometimes friends, often adversaries -- seems unlikely, if only because the United States depends on Pakistan as a route to supply U.S. troops in Afghanistan, and as a base for unmanned U.S. drones. Pakistan relies on Washington for military and economic aid and for acting as a backer on the world stage.

Washington does not want to see further instability in the nuclear-armed country.

But support in the U.S. Congress for curbing assistance or making conditions on aid more stringent is rising rapidly. And Mullen, CIA Director David Petraeus and Secretary of State Hillary Clinton have all met their Pakistani counterparts in recent days to demand Islamabad rein in militants.

Bruce Riedel, a former top CIA analyst with close ties to the Obama White House, which he once advised, told Reuters administration officials have told him that militants who attacked the U.S. Embassy and NATO headquarters in Kabul on September 13 phoned individuals connected with the ISI before and during the attack.

Following the attacks, Riedel said, U.S. security forces collected cell phones the attackers had used. These are expected to provide further evidence linking militants to ISI.

Mullen, who appeared with Defense Secretary Leon Panetta before the Senate Armed Services Committee, said U.S. aid to Pakistan "needs to be conditioned" on Pakistan's cooperation against militants. But as U.S. officials mull a host of unpalatable options for dealing with Pakistan, he cautioned against going too far.

"I think we need to continue to stay engaged. And I don't know when the breakthrough is going to take place. ... We need to be there, you know, when the light goes on," Mullen said.

A separate Senate committee voted on Wednesday to make conditions on U.S. assistance to Pakistan more rigorous, and contingent upon its cooperation in fighting militants such as the Haqqani network.

Mullen, who is about to step down as chairman of the Joint Chiefs of Staff, has been a defender of U.S. engagement with Pakistan and has met more than two dozen times with his Pakistani counterpart, General Ashfaq Kayani.

The Haqqani network is one of three allied insurgent factions fighting U.S.-led NATO and Afghan troops under the Taliban banner in Afghanistan.

In earlier testimony, Mullen said "the Haqqani network ... acts as a veritable arm of Pakistan's Inter-Services Intelligence Agency. ... With ISI support, Haqqani operatives planned and conducted (a September 11) truck bomb attack, as well as the assault on our embassy," Mullen said.

Insurgents struck the U.S. Embassy in Kabul and nearby NATO headquarters on September 13, killing at least seven people and wounding 19.

FLAT DENIAL FROM PAKISTAN

Of the Haqqanis, Mullen said, "We also have credible intelligence that they were behind the June 28 attack against the Inter-Continental Hotel in Kabul and a host of other smaller but effective operations."

Malik, the Pakistani minister, issued a flat denial of such accusations. "If you say that it is ISI involved in that (embassy) attack, I categorically deny it. We have no such policy to attack or aid attack through Pakistani forces or through any Pakistani assistance," he told Reuters.

The U.S. accusations underscore mounting exasperation in the Obama administration, which is struggling to put an end to the long war in Afghanistan.

Some U.S. intelligence reporting alleges the ISI specifically directed or urged the Haqqani network to carry out the attack on the embassy and a NATO headquarters in Kabul, two U.S. officials and a source familiar with recent U.S.-Pakistan official contacts told Reuters on Wednesday.

Mullen said the embassy attack and a bombing this week that killed former Afghan President Burhanuddin Rabbani, who personified hopes for peace negotiations with the Taliban, were examples of the Taliban's shift toward high-profile violence.

Such violence has been a blow to Washington's hopes to weaken a stubborn militancy and seal a peace deal with the Taliban as it gradually draws down the U.S. force 10 years after the Afghan war began.

"These acts of violence are as much about headlines and playing on the fears of a traumatized people, as they are about inflicting casualties -- maybe even more so," Mullen told the Senate panel.

"We must not misconstrue them. They are serious and significant in shaping perceptions but they do not represent a sea change in the odds of military success."

(Additional reporting by Susan Cornwell and Mark Hosenball in Washington and Michael Georgy in Islamabad; editing by Mohammad Zargham and Todd Eastham)

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